What are your rights if you can’t keep up with repayments on a Hire Purchase or Conditional Sale Agreement?
It is important when you enter into any finance agreement that you fully understand all the key facts of the agreement. This blog is aimed at people, like me, who generally skim read their documents checking simply the figures are in line with expectations and then miss out on a couple of important rights. I doubt any of us would enter a finance agreement thinking we’ll default on repayments but should you ever find yourself in that unfortunate position, this information could be useful.
Hire Purchase (HP) and Conditional Sale Agreements (CS)
If you have entered into a HP or CS then you have a couple of rights which you should be aware of; these are commonly referred to as the ‘halves and thirds rules’.
They are two separate levels of protection which you have, as a consumer, which are triggered when you have either paid half or a third of the total amount payable (TAP). Hence their name.
‘Thirds Rule’ – your repossession rights
On a HP or CS, the lender has the right to notify you that they wish to repossess the vehicle in the event of non-payment. If they want to take it from private property, (a driveway or garage) then they would require a court order but not if they wish to collect it from a public place such as the side of the road.
Importantly, if you have paid a third of the TAP they would need to get a court order, irrespective of where they want to collect the vehicle from.
The rules are slightly different in Scotland; the lender requires a court order irrespective of whether you have paid a third of the TAP or not.
If they do try to repossess your vehicle without a court order when you have paid a third of the TAP then it is worth seeking legal advice. The whole agreement could even become unenforceable and any payments made might be refundable.
‘Halves Rule’ – Voluntary Termination (VT)
When you have paid at least 50% of the TAP you are in a position to VT the agreement should you wish. This means handing the keys back to the lender and walking away from the agreement with nothing else to pay. The car will need to be in a suitable condition, in line with the expectations of its age and mileage because if it needs work beyond the anticipated ‘fair wear and tear’ then the lender can bill you for this.
This right is written into the original agreement to protect you against depreciation and can save you a lot of money if you find yourself in serious negative equity, (owing more on the finance than the car is worth).
You should be aware that a ‘Voluntary Termination’ flag will be recorded on your credit file and whilst lenders are not allowed to use this information negatively, in terms of their credit scoring criteria, they may restrict the term or ask for a deposit on future deals to help prevent you being in the situation of reaching negative equity again.
What should you do first if you want to exercise your voluntary termination rights?
I hope you never find yourself in a situation where this information is important to you but if you do need to take action using the ‘thirds’ and ‘halves’ rules, I’d recommend you make the notification to end your agreement in writing to the lender, keeping a copy for yourself, so that you have a clear record to refer back to should you need it.
If you do and happen to be a Zuto customer and need help lowering your monthly repayments, it may be possible that we can help you find a lender who’ll refinance your current deal but it’s important to remember this could increase the overall cost of the vehicle in the long run.